Some Facts About Meg Whitman’s Factory and Start-Up Taxes

Twice in her one-hour debate with Democrat gubernatorial candidate Jerry Brown, GOP candidate Meg Whitman said she wants to rid California of the “factory tax.”

What Candidate Whitman calls the “factory tax” is the absence of a sales tax exemption or tax credit for purchases of manufacturing equipment.

According to legislative budget writers, such an exemption costs the state $870 million annually in tax revenue.

In her campaign materials and by inference in her debate remarks, Candidate Whitman calls the lack of such an exemption a “major obstacle to keeping high-paying manufacturing jobs in California.”

California previously had a “Manufacturer’s Investment Tax Credit” which forgave the state’s share of sales tax – 5 percent – for purchases of manufacturing equipment. It was passed in 1993 and took effect in 1994.

Then Assembly Speaker Willie Brown placed a caveat in the GOP-backed measure before agreeing to support it. Brown said that if supporters truly believed such an exemption would create jobs they wouldn’t mind a clause in the bill saying the exemption would  expire the year following a year in which manufacturing jobs did not exceed the number of manufacturing jobs on January 1, 1994 by at least 100,000.

On January 1, 2003, manufacturing employment failed to exceed the 1994 employment number by more than 100,000  — actually it was more than 10,000 jobs less than the 1994 number – and the exemption expired.

In her first answer using the phrase ”factory tax,” Candidate Whitman also called for the abolition of the “start-up tax,” labeling it a “big stop sign” to new business creation.

What Candidate Whitman calls the “start-up tax” is the $800 minimum tax paid by all businesses that have limited liability. That includes corporations, LLC’s, LP’s, LLP’s and LLLP’s.

Elimination of the minimum tax would cost the state $340 million in revenue.

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